WHAT IS A SHORT SALE?
A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency. (Definition source -Wikipedia)
SHORT SALE STEPS
- Figure out the true value of your property. Many times a real estate agent can provide a market analysis and give you a good idea of what your home might sell for. You can also use Zillow or other real estate related sites to determine the rough value of your home. If the market is moving down keep in mind that your homes value may be moving down as well and estimated valuations may be valid for only a short time.
- You also need to calculate your estimated closing costs. Items such as a title report, escrow, appraisal, attorney fees, agent commissions, unpaid property taxes etc. may add up to a substantial amount of money.
- You’ll need to know how much you owe on your property. Include all loans on the property in your calculation.
- Calculate your equity. Normally the value of your home is more than the total of the loans and closing costs. If your closing cost estimate plus your loan amounts are higher than the value of your property then a short sale is a possibility.
- You’ll need to contact your lender and explain your situation. Be sure you talk to someone who has the authority to make the required decisions.
- Usually lenders have a loss mitigation department that you can contact. Lenders are under no obligation to accept a short sale but many times it is in their best interests to do so. Some lenders will not consider a short sale until you have missed a payment or two. Some will not accept short sales at all. You’ll need to know where your lender stands with regard to short sales so contact them as soon as possible.
- Consider your tax obligations! Do not underestimate this! Many times there can be a substantial tax obligation after a short sale has occurred. Be sure to talk with an accountant or tax attorney to figure out how much money you may owe the IRS if you proceed with a short sale.
- Find a buyer and sell your property. The lender will still have to approve the buyer’s offer but once they do you can sell your property.
- The lender MUST have a authorization form from the seller stating their agent can speak with them during the process.
- Once this authorization form has been received sending in the short sale package would be your next step
- After the lender has received all your documents most lenders start with the appraisal process.
- After the appraisal is in they will review your files sometimes this could take up to 60days to get the short sale approved.
- It is very important that you keep your late payments under 90 days to avoid the foreclosure process. Once you are behind over 90 days the bank normally will start the foreclosure process. However if you make a payment that gives you back 30 days for each payment you make.
- Once the short sale has been approved it will be a smooth process after that. Always make sure to get all documents in a timely manner back to your agent to avoid any delays. Once a short sale is approved the approval is only good for so long so it is important to work with your agent to get the sale close as soon as possible.
The Short Sale Package
"Short Sale Package" and is usually submitted by the investor interested in the property, the agent representing the seller, or the seller of the property. The package usually includes the following items:
Sample Short Sale Package (items may vary depending upon the lender):
- Cover Letter
- Authorization to Release Information
- Sellers Hardship Letter
- Seller's Financial information
- 2 years w2's
- 2 months pay stubs
- 2 months bank statements
- Supporting Hardship Info - HOA liens, medical/disability statements etc.
- Repair Estimate for the property
- Comparable sales for the property
- Lender may ask for an Initial Title Report
- FHA and VA may have their own forms and special requirements as well
- Listing Agreement
- Contract and any addendums or counters
- Net Sheet
- First mortgage holder may ask for a payoff amount from the 2nd
- Second mortgage holder may ask for a payoff amount from the 1st